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4 The need for social trading

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Fintech Business Models
This chapter is in the book Fintech Business Models
4 The need for social tradingSocial trading builds on one aspect that is vital for its activity: the social web.Thesocialwebcanbedefinedas“the sum of all web-based applications whichsupport the exchange of information, relationship building and maintaining,communication as well as collaboration in a social or shared context.”138The mostprominent examples of social web applications are online lexica like Wikipedia, so-cial sharing platforms such as YouTube or social networks of which the leading rep-resentative is Facebook. Social networks enable a vast number of individuals toeffortlessly get in touch, so they can exchange and collaborate online. Users can getinformation from interaction on social platforms as an alternative to opinions theywould otherwise obtain from experts and professionals. Initially, social networks alsoserved as the channel for sharing investment ideas. However, in the meantime spe-cialized online forums have emerged, combined with direct interfaces to users’bro-kerage accounts.139These specialized networks are so-called social trading platforms.Social trading is a rather young concept, which is why no uniform definition exists.In the context of this book however, we will use the following definition: Social trad-ing is security trading on a digital platform where investors derive their investmentdecisions from information or signals provided by other traders in the community.The basic idea underlying social trading is based on the provision of access tofinancial information and investments, which were otherwise primarily available toprofessional investors. This access is achieved through so-called signal providerswho share their investment strategies or portfolios with the online community andprovide signal followers the opportunity to observe their ideas and to discuss, com-ment or even copy them. Due to its nature, social trading is an innovative form ofdelegated portfolio management.140The trend of social trading started when ZuluTrade launched its operations asthe first social trading platform in 2007 and became more and more popular asother start-ups including eToro or wikifolio entered the business area in the follow-ing years. While in the beginning such platforms often primarily served as informa-tion tools, they reached their break-through in financial trading when theyachieved control over the entire value chain. The value chain comprises the genera-tion of a trade signal, its transformation into an order and the execution of theorder in a cost-efficient way with a broker.141138Braun 2013, p. 16.139Braun 2013, p. 16; Lochmaier 2014; Doering et al. 2015, p. 1.140Lochmaier 2014; Doering et al. 2015, p. 1; BaFin 2017a.141Dorfleitner et al. 2018, p. 2; Brylewski and Lempka 2016, p. 140.https://doi.org/10.1515/9783110704907-004
© 2021 Walter de Gruyter GmbH, Berlin/Munich/Boston

4 The need for social tradingSocial trading builds on one aspect that is vital for its activity: the social web.Thesocialwebcanbedefinedas“the sum of all web-based applications whichsupport the exchange of information, relationship building and maintaining,communication as well as collaboration in a social or shared context.”138The mostprominent examples of social web applications are online lexica like Wikipedia, so-cial sharing platforms such as YouTube or social networks of which the leading rep-resentative is Facebook. Social networks enable a vast number of individuals toeffortlessly get in touch, so they can exchange and collaborate online. Users can getinformation from interaction on social platforms as an alternative to opinions theywould otherwise obtain from experts and professionals. Initially, social networks alsoserved as the channel for sharing investment ideas. However, in the meantime spe-cialized online forums have emerged, combined with direct interfaces to users’bro-kerage accounts.139These specialized networks are so-called social trading platforms.Social trading is a rather young concept, which is why no uniform definition exists.In the context of this book however, we will use the following definition: Social trad-ing is security trading on a digital platform where investors derive their investmentdecisions from information or signals provided by other traders in the community.The basic idea underlying social trading is based on the provision of access tofinancial information and investments, which were otherwise primarily available toprofessional investors. This access is achieved through so-called signal providerswho share their investment strategies or portfolios with the online community andprovide signal followers the opportunity to observe their ideas and to discuss, com-ment or even copy them. Due to its nature, social trading is an innovative form ofdelegated portfolio management.140The trend of social trading started when ZuluTrade launched its operations asthe first social trading platform in 2007 and became more and more popular asother start-ups including eToro or wikifolio entered the business area in the follow-ing years. While in the beginning such platforms often primarily served as informa-tion tools, they reached their break-through in financial trading when theyachieved control over the entire value chain. The value chain comprises the genera-tion of a trade signal, its transformation into an order and the execution of theorder in a cost-efficient way with a broker.141138Braun 2013, p. 16.139Braun 2013, p. 16; Lochmaier 2014; Doering et al. 2015, p. 1.140Lochmaier 2014; Doering et al. 2015, p. 1; BaFin 2017a.141Dorfleitner et al. 2018, p. 2; Brylewski and Lempka 2016, p. 140.https://doi.org/10.1515/9783110704907-004
© 2021 Walter de Gruyter GmbH, Berlin/Munich/Boston

Chapters in this book

  1. Frontmatter I
  2. Reviews of the book II
  3. Preface VII
  4. Contents XI
  5. 1 Fintech markets and players 1
  6. 2 More convenience with alternative payment methods 15
  7. 3 Why robo-advisory will replace many human investment advisors 42
  8. 4 The need for social trading 71
  9. 5 Will crowdfunding replace the bank loan? 95
  10. 6 Balance-sheet lending from fintechs providing credit & factoring 126
  11. 7 The future of personal finance management 140
  12. 8 The impact of blockchain technology 157
  13. 9 How serious are cryptocurrencies? 172
  14. 10 Big data and AI 191
  15. 11 Venture capital financing and fintech valuations 204
  16. 12 Conclusion: What we can know and can not know about the future of fintechs 236
  17. List of figures 241
  18. List of tables 245
  19. Abbreviations 247
  20. Glossary 249
  21. Appendix 255
  22. Publication bibliography 261
  23. Index 291
  24. About the author 295
Readers are also interested in:
https://doi.org/10.1515/9783110704907-004

Chapters in this book

  1. Frontmatter I
  2. Reviews of the book II
  3. Preface VII
  4. Contents XI
  5. 1 Fintech markets and players 1
  6. 2 More convenience with alternative payment methods 15
  7. 3 Why robo-advisory will replace many human investment advisors 42
  8. 4 The need for social trading 71
  9. 5 Will crowdfunding replace the bank loan? 95
  10. 6 Balance-sheet lending from fintechs providing credit & factoring 126
  11. 7 The future of personal finance management 140
  12. 8 The impact of blockchain technology 157
  13. 9 How serious are cryptocurrencies? 172
  14. 10 Big data and AI 191
  15. 11 Venture capital financing and fintech valuations 204
  16. 12 Conclusion: What we can know and can not know about the future of fintechs 236
  17. List of figures 241
  18. List of tables 245
  19. Abbreviations 247
  20. Glossary 249
  21. Appendix 255
  22. Publication bibliography 261
  23. Index 291
  24. About the author 295
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